Successful value-based contracting between healthcare insurers and care delivery organizations is critical to the transition towards a more sustainable healthcare system. As healthcare costs continue rising, there is an urgent need to realign payment models to reward providers for efficiency and optimal patient outcomes rather than fee-for-service care volume.

Value-based contracts enable this transition by establishing shared accountability between payers and providers for the total cost and quality of care for a defined patient population. When structured properly, these arrangements encourage care coordination, investment in primary care and prevention, and attention to high-risk, high-cost patients. They also promote collaboration on data sharing and identification of improvement opportunities.

Implementing value-based care is complex. Both insurers and health systems must invest in advanced capabilities to succeed at delivering superior quality at lower costs. The risk of not creating effective value-based partnerships – as such partnerships are becoming mainstream – is lower margins and decreased competitiveness over the long term. Thus, investments to acquire or build the necessary capabilities on both sides are foundational requirements for realizing the immense potential of value-based healthcare.